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Budget wish list from a property investor

With the budget 2020 around the corner, what are your wish lists as a property investor?

It has been a challenging year since the Pakatan Harapan’s 1st budget tabled by Finance Minister Tuan Lim Guan Eng last year. MALAYSIA’S Budget 2020 will be tabled in Parliament on Oct 11. As announced, the theme for this year’s budget is “Shared Prosperity: Engendering High-Quality Inclusive Growth Towards High Income Economy”.

The property market has been sluggish and the property overhang as well as home ownership remain the key concerns. Property consultants and stake holders of property sector has called for the abolition of the Real Property Gains Tax (RPGT) imposed on properties held for more than five years. Other common suggestions are the revision of the price threshold for foreign buyers, reduction of compliance cost borne by developers and better access to financing for homebuyers.

As a property investor myself, I have listed my top 5 wish list for Budget 2020 for property investors, home owners as well as would-be property investor and home owner.

Here’s my wish list:

1. Remove Real Property Gain Tax (RPGT) after the 5th year

In view of the slow market and oversupply situation, I agree with the call from players in the real estate sector who urges to the government to remove the real property gains tax (RPGT) after the fifth year of purchase to 5% (instead of the current 10%) for non-citizens and companies; and zero tax for Malaysians and PRs.

As a result, I believe it will indirectly stimulate the property market and encourage more buyers and investors to re-enter the property market. In addition, this will help to reduce the property overhang and the supply of unsold units in the secondary market.

The last RPGT revision impacted the market negatively. RPGT is a tax on capital gains and was meant to curb speculation, however the current property market is ‘stagnant’ and moving side way. Do you agree that holding a property from the sixth year onwards should no longer view as speculation and should be 0% RPGT for 6th year onwards?

2. Extend loan tenure to maximum of 40 Years

Currently, the proposal of 40-year loan tenure is only for first time home buyer. Previously, it is available for everyone. And it would greatly improve the property market if this proposal were to be extended to include everyone and for those who buys property from the secondary market as well. The advantage of longer loan tenure is that the monthly repayment is lower. This will then reduce the monthly commitment for property owner and a plus point for property investors. A reduced monthly commitment translates to more rental income to the property investors.

3. Increase the loan margin for 3rd property onwards

In overall, we need more catalyst and goodies to spur the property market. Currently, the loan margin for third property onwards is capped at 70% and it’s called LTV70. Therefore, to encourage more property investor to get back into the market, the LTV70 guideline by Bank Negara Malaysia (BNM) should be removed or revised to higher margin i.e. at least 80% margin of finance.

4. Extend House Ownership Campaign (HOC) to include property bought from the secondary (sub-sale) market

House Ownership Campaign (HOC) has been successful thus far to increase home ownership and reduce property overhang. However, HOC campaign is limited to only developer’s new/unsold units. As a majority of property transaction comes from the secondary market, HOC should also be extended to properties purchased from the secondary market to further spur the property market.

5. Increase EPF 2 allocation from 30% to 40%

We are allowed to withdraw money from EPF account 2 to pay for our property purchase. In view of the increased property prices, there is a suggestion to increase the funds allocation from the current 30% to 40%. This will be a good move to reduce the burden of the property buyer to pay for all the cost involved in buying a property.

As a property investor myself, I always encourage investors to leverage on OPM to minimise capital outflow so that profit can be maximized. I specialises in structuring property deals in the sub-sale market so that you are to buy your property with just under RM1000 and make RM20,000 to RM60,000 a year (Read it here >> Discover How To Buy Your Property With Just Under RM1,000 And Make RM20,000 to RM60,000 A Year).

If you have any question or comment, feel free to drop me a message or comment on the box below.

See you soon!

Reference: The Star

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Maintenance charges for stratified mixed development projects

The question of whether a uniform rate should be used or not in a mixed development project  during the Joint Management Body (JMB) period has been an ongoing debate. Strata Management Act 2013 (SMA) Sec 60 (3b) provides for different rates of maintenance charges and sinking fund contributions after titles are issued and the Management Corporation (MC) is formed but during the JMB period, it is not written.

The amount of charges payable is in proportion to the allocated share unit of each parcel (SMA Sec 12 (3), 25(3). If your unit is larger, you would need to pay more, but you should have more voting power by poll. It depends on the budget too. Read more

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Measures to boost the property market

It’s not easy for the government and other stakeholders when it comes to the current mismatch in the property market.

The people want to buy homes but they want it to be affordable and in a good location and at least have the kind of features they want.

The current unsold units point to a mismatch in demand versus supply which the government intends to correct by building 100,000 affordable units in 2019.

There are also calls to relax lending rules for some potential buyers so they can get the loans they need.

We should also note that the issue of banks willing to lend and borrowers qualifying for a loan are two different things altogether too.

As for the measures to boost the property market, here’s a roundup.

According to an article in the NST, Malaysia’s economic growth this year is expected to be slower compared to the last two years with a projected growth of 4.9% in 2018, 4.7% this year and 4.6% next year.

Based on the latest statistics available, the number of unsold residential properties rose 48.35% (30,115) from 20,304 units year-on-year while the total value increased 56.44% from RM12.49 billion.

The 2019 Budget introduced some measures to encourage residential property market growth.

Some of the measures are:
• Stamp duty exemption on the first RM300,000 on the sale and purchase agreement for first-time buyers priced RM500,000 and below.
• Six-month stamp duty exemption for first-time buyers for units between RM300,000-RM1 million.
• Peer-to-peer crowdfunding initiative to provide buyers an alternative source of funding.
• Building of affordable homes for the B40 group.
• Help from Bank Negara Malaysia for first-time buyers with an income of less than RM2,300 for homes priced below RM150,000 with an 3.5% interest.
• RM25 million by Cagamas to provide mortgage guarantees for first-time home buyers with incomes of less than RM5,000.

Boosting the property market is needed. Rent-to-own schemes will help those needing a home but lacking the funds for a downpayment. Secondary markets should also be included.

However, any move that makes the property market become more speculative, should be avoided at all costs.

Buyers who really do not qualify should not get the loans they applied for, period. Properties must be built in the areas and with the specs that buyers need.

The numerous unsold units in the market have revealed that many were built with the intention of achieving “quantity” alone.

Hopefully, when we look back at this situation in 2020, the 100,000 units would have sold out and not added to the number of existing unsold units in the market.

Source: Free Malaysia Today

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Is using EPF contributions a solution to owning a home?

Employees’ Provident Fund (EPF) money is best left for our retirement. But is it safe? Yes, unless Malaysia encounters some unforeseen circumstances where even the EPF has to be disbanded. Otherwise, it is safer left in our EPF account rather than in any bank, even if it’s the largest bank in the world.

Then, the second question, “You think EPF returns are better than outside?” Briefly, it should be. For the risks versus returns assessment, the EPF carries a rating of good, if not excellent and definitely not bad.

However, the following is an interesting proposition.

According to an article in FreeMalaysiaToday.com, deputy president of the Malaysian Institute of Professional Real Estate Agents and Consultants, See Kok Loong said that the government’s one million homes in 10 years is not a solution for the B40 and M40 groups.

See said that B40 and M40 groups were unable to own homes due to their low real residual income.

He cited a study by Khazanah Research Institute which showed that real residual income for those earning a household income of RM2,000 and below per month was only RM76.

He said, “How can you pay instalments with RM76 per month? No bank would want to give you a loan.”

He proposed that EPF members be allowed to draw from their monthly contributions to pay for monthly instalments. This allows them to own a property and have higher real residual income without having to pay rental. He gave examples of some calculations.

“The B40 median household income is RM3,000 per month, so their monthly contribution to EPF is RM720. With the RM720 at an interest rate of 4.4% and a tenure of 25 years, the member is eligible for an RM135,000 loan.”

“For the M40, the median income is RM6,275 per month. Their contribution is RM1,443 per month and with an interest rate of 4.4% and tenure of 25 years, they will be eligible for a loan of RM270,000.”

Actually, it would be good to know a little about the kind of property an EPF member can buy for RM135,000 and RM270,000.

If the property options are really good – features, size and location – using EPF contributions should be seriously considered. The reason is because a piece of good property will always be a good hedge against inflation.

Usually, capital appreciation will beat inflation, and the return on investment will be in the double digits too!

Whether to use our EPF money or not is a big decision to make. Perhaps more discussion, consultations and negotiations are needed before any decision is made.

Source: Free Malaysia Today

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BNM trims OPR to 3% on market headwinds

Bank Negara Malaysia (BNM) decided to cut the Overnight Policy Rate (OPR) by 25 basis points to 3% from 3.25% at its Monetary Policy Committee (MPC) today amid weak economic outlook.

This is the first adjustment since January 2018.

“The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25% and 2.75% respectively,” the central bank said in a statement today.

BNM said latest developments in Malaysia point towards moderate economic activity in the first quarter of 2019.

“Looking ahead, slowing global demand conditions and subdued growth of key trading partners will continue to weigh on the external sector.”

The central bank noted that while domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions.

“The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness. This is consistent with the monetary policy stance of supporting a steady growth path amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.”

 

Source: The Sun Daily

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Monetary Policy Statement

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 3.00 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25 percent and 2.75 percent respectively.

The global economy continues to expand moderately. While growth outcomes for several major economies were better than expected during the first quarter, underlying economic conditions continue to suggest moderation going forward. Considerable downside risks to global growth remain, stemming from unresolved trade tensions and prolonged country-specific weaknesses in the major economies, further dampening global trade and investment activities. Although the tightening in global financial conditions has eased somewhat, heightened policy uncertainties could lead to sharp financial market adjustments, further weighing on the overall outlook.

For Malaysia, latest developments point towards moderate economic activity in the first quarter of 2019. Looking ahead, slowing global demand conditions and subdued growth of key trading partners will continue to weigh on the external sector. Domestically, stable labour market conditions and capacity expansion in key sectors will continue to drive household and capital spending. The baseline projection is for the Malaysian economy to grow within the projected range of 4.3% – 4.8%. However, there are downside risks to growth from heightened uncertainties in the global and domestic environment, trade tensions and extended weakness in commodity-related sectors.

Headline inflation increased to 0.2% in March 2019 (February: -0.4%), due mainly to the less negative transport inflation at -3.0% (February: -6.8%). Underlying inflation, as measured by core inflation[1], remained stable at 1.6% in March 2019. In the immediate term, inflation is expected to remain low mainly due to policy measures. These include the price ceiling on domestic retail fuel prices until mid-2019 and the impact of the changes in consumption tax policy on headline inflation. For 2019 as a whole, average headline inflation is expected to be broadly stable compared to 2018. The trajectory of headline inflation will continue to be dependent on global oil prices. Underlying inflation is expected to remain stable, supported by the continued expansion in economic activity and in the absence of strong demand pressures.

The domestic financial markets have remained resilient, despite periods of volatility primarily due to global developments. While domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions. The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness. This is consistent with the monetary policy stance of supporting a steady growth path amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.

Source: Bank Negara Malaysia

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Why is the savings rate in Malaysia on the decline?

The last generation was more disciplined about savings – no matter how little or how much they earned. And they made it a point to instil the savings habit in their children.

However, it seems that these days, Malaysians in general tend to save less.

An article in the theedgemarkets.com touched on this very issue, reporting that the pace of growth of individual savings had weakened in 2017 compared to previous years.

Sunway University Business School professor of economics Dr Yeah Kim Leng said the rising household debt-to-gross domestic product ratio was a contributing factor to declining savings.

He said, “When household debt goes up, you can expect savings and fixed deposit balances to decline as there would be less income available for savings, and [monthly income] would instead go towards financing assets that include property investments.”

Socioeconomic Research Centre executive director Lee Heng Guie said the weaker growth rate of savings could be the result of many having to repay debts using their savings.

Lee said a pick-up in savings was seen from 2011-2012, likely due to the normalisation of the overnight policy rate.

He said, “After the 2008 global financial crisis, the central bank slashed the interest rate, and this started to normalise from 2010 onwards. So the role of interest rates is an important factor here especially for pensioners when deciding where to put their money.”

UOB Malaysia senior economist Julia Goh also said the growth rate of household savings was on the decline.

“The compound annual growth rate (CAGR) of household savings declined from a growth rate of 7% in the periods of 2000 to 2005 and 2006 to 2010, to 6% in 2011 to 2016,” she said in an article in theedgemarkets.com.

It’s true that it’s hard to save more, these days. Let’s talk about those who actually could save IF ONLY they did not buy that new handbag, that new handphone or take those weekly trips to the cafe for a RM15 latte.

Actually, what the stats continue to tell us is that the disparity in income will likely become wider everywhere in the world. Earlier article here.

Those who can somehow save and use their savings to invest to earn higher returns will likely be better off many years in the future compared to those who do not save at all.

Whether it’s an investment into equity for good returns at low management fee or buying a property and letting it increase in price slowly, all these will help even as the savings rate continues to decline.

Better understand it and start early. Starting LATER will come sooner than we think.

 

Source: Free Malaysia Today

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How govt policies can determine home prices

When it comes to the issue of size, always buy only what you can afford. Buy the largest size possible for our money today. It may not yet be apparent but “bigger will always be further” while “nearer means smaller”.

Don’t predict, just look at the future by looking at advanced property markets. Look at the suburbs in Sydney and Melbourne to understand why buying within a central business district (CBD) will mean high-rises and not landed homes.

In an article in The Star, it was reported that Hong Kongers’ interest in micro-apartments had dissipated. These units are usually less than 200 sq ft.

The South China Morning Post used data by Dataelements to monitor the sale of new flats in Hong Kong and revealed that since 2016, out of 976 units that were added, 461 remained unsold as of late December 2018.

The data showed that this started in 2014, because of a shortage that caused home prices to spiral. In fact, this gave developers a reason to keep increasing prices.

For example, CK Asset Holdings, the flagship company of retired tycoon Li Ka-shing, sold out its Mont Vert project in Fanling at HK$1.29 million after a 15% discount. The smallest unit was 165 sq ft.

Then Hong Kong’s Chief Executive Carrie Lam Cheng Yuet-ngor started to “cool” the market.

She introduced a vacancy tax to force developers to release their units. Banks began raising mortgage rates for the first time in 12 years. Due to the surplus on the developers’ side, they began offering discounts across all property types.

In end December 2018, Lam’s administration offered 2,545 units of subsidised housing in Cheung Sha Wan for sale, at discounts of up to 58% off market prices, offering the smallest 184-sq ft unit, for HK$930,000.

To qualify for the government’s subsidies, an applicant cannot earn more than HK$11,540 per month or own more than HK$249,000 in assets while the threshold for a couple is HK$17,600 in monthly income and combined assets of HK$338,000, The Star reported.

Under the 4Ps (People, Price, Policy and Preference), “policy” has the power to impact the market.

This is usually what the government will implement to help turn the direction of the property market to something more preferable or desirable.

Singapore’s HDB flats are one such “policy”. It ensures most Singaporeans in need of an affordable home based on their salaries, gets one.

We should monitor the direction of affordable homes for the majority, shaped by policy here in Malaysia.

Source: Free Malaysia Today